Business Irish

Sunday 21 April 2019

Richard Curran: 'More answers needed in the curious case of Delaney loan'

Cash flow: Football Association of Ireland CEO John Delaney faces questions over the €100,000 loan
Cash flow: Football Association of Ireland CEO John Delaney faces questions over the €100,000 loan
Richard Curran

Richard Curran

Whenever you see newspaper headlines about a chief executive and a loan, it usually involves money going from the company they work for to the senior executive.

In the case of the Football Association of Ireland (FAI) and its CEO, John Delaney, the €100,000 loan went the other way. It is a truly curious case when an executive running a multimillion-euro commercial organisation, lends money to the business he is running, and then receives it back a few months later.

It is pretty rare and raises questions about the circumstances in which this was deemed necessary. There are examples of chief executives running companies who, for various reasons lent the company money from their own personal funds. This usually occurs when they happen to own some or all of the company and it might be deemed a "shareholders' loan". It clearly isn't the case here.

Certainly the FAI issue raises questions about why this loan was needed and why it wasn't drawn from a bank or an other more conventional funding source. What did the loan agreement look like?

The association has issued three statements on the matter so far and has provided some detail, saying it was a short-term loan based on a cash flow need. It was provided by Mr Delaney in April 2017 and repaid in June 2017.

It has also emphasised that it was in the association's best interest. What does that mean? Well it could mean that a bank loan or short-term overdraft was available, but it would have cost a small amount or even a large amount in charges, fees and interest and Mr Delaney was a cheaper option.

Or could it mean the association had struggled to raise the money from elsewhere and Mr Delaney was helping it out, albeit somewhat unconventionally?

No doubt further details will emerge in time.

Whatever about the boys in green "emptying the tank" on the field, the FAI emptied the financial tank in 2017. At the end of that year, it had zero cash in the bank and at hand, and also had a new overdraft of €1.3m. It's net debt position that year went up by €1.5m.

The FAI is not a commercial company, but instead plays a bigger role in promoting and developing soccer in Ireland. It that sense, it has loftier community and social goals than just a business. But it does need to operate to certain corporate governance standards and levels of transparency and disclosure.

This loan is not typical by most organisations' standards and therefore the association should have had full disclosure around it immediately. Instead, it is examining its corporate governance structures with the promise of publishing policy changes next month. Mr Delaney sought to injunct a newspaper that planned to publish the story. Neither did the FAI disclose details of the loan in its annual report for that year.

The debacle raises questions about the strength of the finances of the organisation at that time and the level of remuneration paid to its chief executive, who earns €360,000 per year.

It has also emerged that Mr Delaney donated back his €160,000 earnings from Uefa to the FAI. These are fees he earns as a board member of the European soccer body.

This is generous, but is it really the best way to handle things?

If his Uefa role involves extra work beyond his FAI role and doesn't interfere with it, then why not keep the Uefa money? He has earned it.

If it interferes with or takes away from his work and productivity at the FAI, then the FAI should tell him to quit the Uefa job, or else pay him less at the FAI. The current arrangement, as disclosed, doesn't really work for anybody.

A look at the finances of the FAI through its annual report paints an interesting picture of both the successes and challenges of the association.

Back in 2017 when all of this was going on, Mr Delaney was writing in the annual report how 2016 had delivered a record €50m turnover and it had generally been a great year with a €2.3m surplus.

It seems extraordinary, that a business with a €50m a year turnover couldn't put its hands on €100,000 for a three-month period without the personal financial support of its chief executive.

Accounts for 2016, published in 2017, show that indeed the FAI did hit a €50m turnover, up from €46m in 2015.

But international match income fell by €800,000 that year. Commercial income was marginally up, as was income from running technical courses. The main factor behind the turnover increase in 2016 was a €3.9m increase in grants and subvention income bringing it to €9.6m. Grant and subvention income went up by €3.9m but "cost of sales" shot up by nearly €7m. The accounts do not provide a breakdown of where these higher costs came from.

At that time, the association was forking out close to €5m in interest on its loans - a major drag. But it did a refinancing of its debt and, from 2017, its interest bill dropped substantially to €1.9m.

Back in 2016 the FAI took on 15 extra staff but managed to slash the overall wage bill by €1.1m.

Having reduced its bank debt levels to €34m, 2017 should have been an altogether better financial year. After all, its interest bill was to drop by nearly €3m. So it is all the more puzzling how it could have required a three-month loan of €100,000 from its CEO in the middle of that year.

In Mr Delaney's defence, the organisation did perform better on various financial metrics in 2017. International match income grew from €15.7m to €17.3m in 2017, although this may be more a feature of who the teams played, how well they were performing.

Commercial income also grew, by a modest €300,000 to €16.9m. Income from courses rose by nearly €800,000 to €6.2m - although this may be partially derived from higher prices for courses rather than huge growth in the number of courses and participants.

The big financial negative in 2017 was a €3.5m drop in grants and state subvention to €6.18m.

So, despite the association's best efforts to maximise revenue from its own performance, the level of state subvention materially affects whether it is a record year or not.

The accounts for 2017 also tell an interesting story about the cash flow of the association that year. At the end of 2016, the FAI had nearly €1m in cash in the bank and no overdraft. A year later on December 31, 2017 it had zero cash in the bank or in hand, and an overdraft of €1.36m.

The financial squeeze from its debt profile also came more into view at the end of 2017. Loans falling due in 2018 amounted to €2.6m, with a further €3.7m due in 2019. A further €32.2m falls due between next year and 2022.

Mr Delaney argues that the FAI is transparent and he publishes his salary, unlike other sporting bodies. But the organisation which has received tens of millions of euro in public money in the last decade, needs to do more.

An appearance at the Oireachtas committee next month should elicit more information.

It may provide the context for what was a practical solution to a short-term cash flow issue.

Equally, accepting the FAI's explanation for this loan entirely, does not paint a very good picture of the financial position of the national soccer body.

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